Help! Remortgaging and not sure if we should pay out for fixed rate.

Gray_m

Hello. Any advise/ideas would be MUCH appreciated. We have a mortgage for £164,000 and have been on a a fixed rate intrest only deal which is due to end in october. Due to buying at the wrong time and having no equity in the house we are limited to stay with our current mortgage lender. The mortgage will automatically revert to a 4.99APR un fixed rate.

My question is..... what should we do? should we ask for another fixed rate deal of a similar amount but incur the 2K fees? or stick unfixed on intrest only and overpay? or try and do a 50:50 deal? really confused!

If the intrest rates do go upby even half a percent... how much more would i be paying a month?

Cannon_Fodder

Assuming a 25 year mortgage;

@ 4.99 you'll be making repayments of £968, or interest only £681.

@ 5.49 you'll be making repayments of £1017, or interest only £750.

Check your Ts&Cs, you may be able to make overpayments in small or large lumps.

For interest only, there's a fair chance you'll be asked to provide evidence of a repayment vehicle to get interest only, which negates the benefit. Unless you are saying that you are in danger of going into arrears, in which case read up on Govt advice on getting support http://www.timesonline.co.uk/tol/money/reader_guides/article6206712.ece and see where you qualify.

If so, also get to the other Money Saving forums, post your Statement of Affairs and try to economise so you can overpay to provide equity for a future remortgage, or at least afford furture interest rate rises if you stay on SVR.

Have you spoken to your lender? Is the £2k definite?

Gray_m

Thank you Cannon Fodder... we are on a 30 year deal. can afford about £800.00 a month but so limited by what is availiable. what is a 'repayment vehicle'? if we stick on intrest only we can put away the rest to make a lump sum overpayment or we could maybe do 50:50 which they estimated at about £790.00 a month but worried the intrest rates are going to go up and it would stretch us beyond our means?

beecher

It is a concern that you can only afford £800 a month with that level of mortgage. You need to have a plan to cope with higher interest rates. Go onto the Debt Free Wannabee forum for help in cutting your household expenses. Other options are selling up and renting, or getting a lodger in. With no equity in the house and no real plan to pay back the capital, I think you need to look seriously at your situation.

Jamsterthehamster

we are in the same position.
found out today that our 90% ltv we took out 3 years ago, is now rated at 107%.

basically our option (only option so far) is to go onto the SVR.
save, overpay where possible, and hope for the best.

we're early 30's, with a 1 year old nipper & new baby on way - all savings went to put deposit on house 3 years ago, circumstances in the economy went the wrong way - you win, you lose!
I believe in karma -surley it can only get better.....!?

(oh!..BTW for all you 'holierthanthows' we both work hard, and have never been state scroungers):rolleyes:

Anyway - hope you guys get sorted, but remember there is more to life than fixed rates, ltv, apr, etc...

Gray_m

Thank you both.... Jamster, thats exactly the situation we are in. We have two little ones and i'm on maternity leave... so basically we are on one salary. It won't always be this case but this is it at the mo.stressfull stuff eh?:o

Any other opinions / advice greatfully recieved!

Cannon_Fodder

A repayment vehicle is a means by which you plan to repay the mortgage.

IO never touches the capital.

Overpayments, if too infrequent will make little dent on the capital owed. If the prospect of higher rates worries you, then the likelihood of making overpayments is presumably low...

Unless you want to still be paying interest for 50+ years or until you are 90.., instead of the original 25yr term, you need to repay the capital...

Gray_m

We are hoping to overpay 1k to 1& 1/2K a year. Do you think this is too small? Hoping to get our equity back in the house so when the market does pick up we can be in a better situation? do you think this is the best way to do it at then mo?

beecher

Gray_m wrote: »

We are hoping to overpay 1k to 1& 1/2K a year. Do you think this is too small? Hoping to get our equity back in the house so when the market does pick up we can be in a better situation? do you think this is the best way to do it at then mo?

On a mortgage of £164,000 I'd say it is not nearly enough, particularly if you have no equity.

Definitely post a SoA on the Debt Free Wannabee forums in order to be able to tackle this.

Cannon_Fodder

164,000 divided by 1,500 = 109 years...

Now, it won't be quite that awful, as over time your interest will reduce and you will presumably pay the same total amount so some of what was paying interest can go towards extra overpaying...

...so maybe it will only be 50-75 years...

BUT, your plan is based on what you can afford at these low rates.

When rates rise you'll need that "spare" interest to pay increased rates...

Cannon_Fodder

Had another thought of how to view the amount of overpaying that you are planning to do...

£1,500 a year = £125 per month.

The difference between IO and repayment in the examples in my first post is £250+ per month.

Not so much overpaying, as underpaying...by half, which at least doubles the term...